Hong Kong investors are back in business in London

Hong Kong is a great city, the gateway to Asia; but it’s a city that is going through some troubles at the moment. I have now been working with Hong Kong investors for almost a decade, and I have never seen the sentiment this low – the business community is naturally concerned about the future of Hong Kong. They don’t know when, and how, matters will be resolved.  In addition to concerns about an endgame of the current political and social disruption, there is also increased discussion about what will happen in 2047, when “one country, two systems” comes to an end. Will Hong Kong become just another Chinese city? The unprecedented disruption and uncertainty is causing both old and new Hong Kong investors to actively consider overseas real estate investment. The demonstrations in Hong Kong were initially focused on the proposed extradition law, which would have allowed the transfer of suspects to mainland China. However, the protests have now evolved into a larger movement focusing on social issues, such as the cost of housing and opportunities for the younger generations. The demonstrations are becoming increasingly disruptive and this is impacting upon daily lives, tourism and business. As you would expect, the demonstrations are also impacting upon the notoriously expensive Hong Kong real estate market. Transaction volumes and demand are down, but pricing is holding up – for the time being. There has been no reported panic selling, but there is a stand-off between sellers who don’t currently need to sell and buyers who are looking for a discount. Sound familiar? Active investors What does this mean for UK real estate? Notwithstanding our own continued political uncertainty, the UK remains the number one investment destination for Hong Kong investors. We are seeing a considerable amount of Hong Kong capital actively looking at UK opportunities. There are some investors who fear that Hong Kong could be in a slow decline and that now is a good time to invest in the UK. Hong Kong investors were very active in 2016 and 2017, but many of them were happy to stand on the sidelines in 2018 and watch the South Korean investors dominate the London market.  The rhetoric has changed over the past few months – the Hong Kong investors are back in business. They are taking advantage of the weak sterling and looking to diversify or spread their wealth into the UK market. We have therefore seen a significant increase in the number of bids and successful transactions since June.  Interestingly, we have also seen a number of new entrants who are actively bidding and transacting, rather than just window-shopping. Who are these buyers? It’s a mistake to generalise Hong Kong investors, since they come in all shapes and sizes – high net worth individuals, family offices, listed companies, private developers and funds. However, Hong Kong is a city which is largely owned by private families (or the listed companies majority owned by families), and so the investors are often ultimately private (with some exceptions).  The decision-makers are commonly the second or third generation of the families and have studied in London – they understand the UK and feel comfortable investing here. What are the Hong Kong investors looking to buy, and where? London continues to be their top (and in many cases, only) investment destination. The Hong Kong clients have traditionally focused on prime City and West End (offices, retail and hotels), but we are now also seeing some demand for regional offices and value-add opportunities. Chris Harvey is head of UK real estate at Mayer Brown